US chip sector selloff intensifies, market value evaporates by over a trillion dollars! Inflation exceeding expectations reignites rate hike expectations, AI infrastructure financing bottlenecks trigger valuation reassessment.

Title context: US chip sector selloff intensifies, market value evaporates by over a trillion dollars! Inflation exceeding expectations reignites rate hike expectations, AI infrastructure financing bottlenecks trigger valuation reassessment. Text: The US semiconductor sector is undergoing a profound market reassessment. As September inflation data came in above expectations, further reinforcing Federal Reserve rate hike expectations, and compounded by rare warnings from the CEOs of Broadcom Inc. (AVGO.US) and Intel Corporation (INTC.US) regarding AI infrastructure financing bottlenecks, the global AI-themed trade centered on semiconductors has suffered massive selling over the past week. The Philadelphia Semiconductor Index (SOX) has fallen about 12% over the past six trading sessions, with market value evaporating by approximately $1.6 trillion, marking its longest losing streak since May 2025; on Wednesday alone, the index plunged 4.30%. This decline has not only affected the US market but has also rapidly spread to major global semiconductor hubs such as South Korea and Japan, triggering widespread discussion among investors about the sustainability of the AI investment cycle. More than half of the index's constituent stocks fell by at least 10% during this period. Arm Holdings Plc (ARM.US) plummeted 21%, Applied Materials (AMAT.US) fell 16%, and Intel Corporation (INTC.US) dropped 13%. GlobalFoundries (GFS.US) was the only stock to gain, outperforming its peers during this period. The semiconductor sector's decline echoed broader market weakness the tech-heavy Nasdaq 100 fell more than 2%, its worst single-day performance since late July, while the S&P 500 dropped 1.1%. This selloff was not confined to the US market alone. Global semiconductor stocks experienced synchronized selling. In early Asian trading on Thursday, South Korea's KOSPI opened down more than 5%, hitting a new low since July, while Japan's Nikkei 225 fell more than 3%. The correlated decline in global semiconductor stocks reflects deepening systemic concerns among investors about the sector. "In recent days, pressure on global chip stocks has been mounting," wrote Ulrike Hoffmann-Burchardi of UBS Group AG's Chief Investment Office in a research note on Wednesday. "While intensifying competition in AI, rising financing needs, and higher interest rates may periodically exacerbate volatility, we believe this latest selloff is more of an expectation recalibration than a fundamental rupture in the AI investment thesis." Inflation pressures are heating up across the board, with core CPI rebounding above expectations The latest round of pressure came after September inflation data came in higher than expected, further reinforcing market expectations that the Federal Reserve will continue raising rates, even though policymakers may hold steady at their next meeting later this month. Data released by the US Labor Department on October 14 showed that, driven by rising energy and food costs, the September Consumer Price Index (CPI) rose 0.6% month-over-month, the largest increase since April this year; the year-over-year rate rose to 3.7%, up from 3.4% in August and exceeding economists' expectations of 3.6%. Excluding volatile food and energy prices, core CPI rose 0.3% month-over-month, unchanged from August but above the market expectation of 0.2%; the year-over-year rate rose from 2.4% in August to 2.6%, exceeding the expected 2.5%. Specifically, energy prices were the main force driving overall inflation higher. The energy price index rose 5.2% month-over-month in September, with the gasoline price index up 9.1% month-over-month, contributing more than half of the month's CPI increase. Ongoing conflict in the Middle East continued to push up fuel costs, with energy prices up 20.4% year-to-date through September. Rising fuel costs further pushed up airfare prices, which rose 1.2% month-over-month in September and 22.4% year-to-date. Notably, price increases have extended beyond the energy sector, showing a broader spillover pattern. Analysts pointed out that prices for entertainment, used cars and trucks, education, airfare, healthcare, and apparel all rose, with some increases stemming from tariffs and energy factors, but others indicating that inflation is more sticky. Ol Sonola, head of US economic research at Fitch Ratings, said the latest inflation data is a "red light" for the Federal Reserve, and the transmission of price increases to broader service sectors could heighten the risk of sustained inflation. A deeper issue is that AI infrastructure construction itself is becoming a driver of inflation. The data center construction boom is pushing up prices for commodities such as semiconductors and transmitting through channels such as construction labor costs to the broader economy. Chicago Fed President Goolsbee explicitly pointed out that inflationary pressures spawned by the AI boom are extending beyond directly related industries. "The areas seeing price increases are no longer limited to data center components and directly related industries. I am increasingly concerned that this is a classic case of aggregate demand overheating." The above-expectations inflation data quickly reshaped market expectations for the Federal Reserve's rate path. According to the CME "FedWatch" tool, after the CPI data was released, traders' bets on a 25-basis-point rate hike in October briefly rose from about 18% before the data to 50%. The probability of a December hike rose to nearly 90%. Although market expectations have cooled somewhat as of publication, the probability of a December hike remains above 60%. Fed policymakers released hawkish signals around the inflation data release. New York Fed President Williams explicitly stated that he still believes one more rate hike this year is appropriate, but does not think the central bank needs to raise rates further in 2027. Williams revealed that the Iran conflict pushing up energy prices and widening refined product price spreads changed his assessment of the near-term inflation outlook, making him "strongly support" the September rate hike decision. Boston Fed President Collins also said she expects "moderate further rate increases will be appropriate" before year-end, aimed at ensuring inflation returns to the Fed's 2% target in a timely and sustained manner. Cleveland Fed President also expressed a similar stance, saying further monetary tightening may be needed. Citigroup adjusted its forecast after the CPI data, expecting the Fed to raise rates by 25 basis points in December 2026, whereas it had previously predicted the Fed would keep rates unchanged through the end of this year. In a special interview, Williams particularly noted that the AI infrastructure boom, alongside tariffs and energy prices, has become one of the three core variables currently affecting the US inflation path. He observed that rising costs and commodity prices related to AI construction have already emerged: "We do see rising goods and other costs related to AI construction: data centers, huge demand for chips. Prices in AI-driven subsectors have seen fairly sudden and significant increases, and we are also seeing some signs of spillover into construction labor costs." But he also offered a relatively optimistic long-term assessment as chip capacity increases and productivity improves, the supply side may improve in the future and form a force that suppresses inflation. Broadcom Inc. CEO's warning triggers chain reaction: capital constraints on AI investment surface Beyond macro-level rate pressure, industry-level financing constraint warnings became another important catalyst for this round of selling. Broadcom Inc. CEO Hock Tan earlier this week compared some investors chasing the AI boom to "gamblers," saying bluntly that many AI investors do not understand the technology they are investing in yet hold extremely high expectations. He further warned that capital not chip supply will become the biggest constraint on AI development. Hock Tan also questioned the actual benefits of corporate AI spending, pointing out that AI model developers must find customers who can generate returns on investment by adopting AI technology, rather than relying on users who are still in the trial stage and constantly "wasting money" on tokens. He used a vivid analogy to illustrate the problem: "It's like when you were a kid and went to an arcade to play games. Your parents gave you $10 worth of tokens, and you spent them all in 10 minutes without learning anything. That is exactly what is happening in the corporate world today." Hock Tan also questioned the actual benefits of corporate AI spending, pointing out that AI model developers must find customers who can generate returns on investment by adopting AI technology, rather than relying on users who are still in the trial stage and constantly "wasting money" on tokens. He used a vivid analogy to illustrate the problem: "It's like when you were a kid and went to an arcade to play games. Your parents gave you $10 worth of tokens, and you spent them all in 10 minutes without learning anything. That is exactly what is happening in the corporate world today." These remarks sparked widespread resonance and controversy in the market. Michael Burry, the renowned investor whose story inspired the film "The Big Short," reposted this segment of Hock Tan's remarks on social platform X, specifically highlighting the issue that companies are spending money on AI tokens without necessarily creating real value. Broadcom Inc.'s warning was corroborated by reality. AI cloud computing service provider CoreWeave's (CRWV.US) unsecured bonds maturing in 2032 fell below 80% of face value on Wednesday, with yields exceeding 15%; its credit default swaps rose to record highs, with market pricing indicating a probability of default exceeding 50% within the next five years. CoreWeave's stock closed down more than 15% on Wednesday. D.A. Davidson analysts had previously called CoreWeave the "subprime tranche" of AI, warning that if the AI financing boom fades, the company may be unable to repay its hefty debt. Daniel O'Regan, executive director of equity trading at Mizuho Securities, noted that over the past few weeks, investors have become "increasingly unwilling to fund AI-related spending at any cost." AI capital expenditures have exceeded companies' ability to generate free cash flow, meaning companies must seek external financing to purchase needed hardware, and when external financing becomes more difficult, spending on chips and other AI infrastructure could be materially affected. A JPMorgan analyst team led by Nikolaos Panigirtzoglou wrote in an October 14 report that although the stock price action resembles the late-July pullback, the current backdrop for AI infrastructure stocks is more unfavorable. Panigirtzoglou said the reason is that "although overall equity funds still have continued inflows, retail investors have so far lacked 'buy-the-dip' behavior, buyback flows have seen a cliff-like decline, the short base is insufficient, and leveraged equity ETF assets under management are higher." "Despite the recent pullback, from a positioning or flow perspective, cyclicals do not appear oversold." "We advise investors to focus on where AI spending is translating into sustainable earnings growth, as well as broader corporate and consumer adoption," said Hoffmann-Burchardi of UBS Group AG.